Governments are struggling to understand bitcoin. Understanding history might help them better appreciate the Copernican revolution in money.

The establishment never deals easily with changes to its status
quo. A cocktail of delay, denial and confusion is the usual heady
mix which afflicts the governing classes as the bureaucracy
wrestles with what art critic Robert Hughes deliciously described
as “the shock of the new.”

With any form of innovation, the state sector tends to wrap
itself in a fetal position and hope the problem goes away.
Sometimes the problem is resolved by an outbreak of management
decision making, or, the powers that be simply find a way to
regulate the problem into their out tray.

Thus scientific breakthroughs we take for granted today, often
spent many years in the wilderness being disputed. Some kept
their biggest revelations hidden from the public for years. For
example, the seminal ‘De Revolutionibus’ was finally
published as Nicolaus Copernicus lay on his death bed. The
polyglot Pole identified that the Earth orbited the sun (and not
vice versa as the established church erroneously maintained). In
one of his other genius missives, Copernicus discovered the
theory that ‘bad money drives out good’ (sometimes
referred to as Gresham’s Law after a later English advocate).

I have previously noted, the arrival of bitcoin is central to ‘the Copernican Revolution in
Money’.

Before there was a single universe with central bankers at its
core, while now we are entering a new multilateral galaxy with
bitcoin and competing crypto currencies sitting at the core of
each universe.

Meanwhile, governments are struggling with how to tackle bitcoin,
which clearly threatens the hegemony of central bankers. That
affects the ability of government to control the economy through
cash manipulation - whether inflicting inflation, dictating
interest rates or de facto economic terrorism such as the highly
flawed government vogue, Quantitative Easing.

When providing ministers with ‘independent’ advice,
central bankers clearly have a very significant conflict of
interest. Appraising the future of money has a direct impact upon
central bankers’ jobs, as their institutions are clearly
threatened by bitcoin’s disintermediation of government money.

Long before central banks, in 1528 to be precise, Nicolaus
Copernicus authored a paper ‘Monetae Cudendae Ratio’ for
the Prussian diet to discuss the general theory of money. Five
hundred years later, this paper bears an acutely pertinent title:
‘On the Minting of Coin’. Nowadays (bit-)coin mining is
a digital process and not the analogue process of the Middle
Ages, but the sentiment is the same.

Thus we reach a crucial issue. Some nations such as Norway have
dramatically endeavored to sideline bitcoin while many others are
vacillating. In Russia there are mixed signals although the
current reaction to the sanctions tit for tat suggests Moscow is
moving away from bitcoin liberalization. Clearly there are
worries that the ruble moving to a free float is already
endangered by recent sanctions activity, enabling a competitor
may be viewed as unhelpful.

Meanwhile the UK is claiming to be entirely pro-bitcoin, at least
if the finance minister is to be believed, but then again British
regulators have already largely precluded mass crowdfunding from,
well, involving a crowd. Nevertheless the UK appears to be
broadly moving to liberalize bitcoin while the US has vestiges of
openness but then again a proposal from the New York attorney
general to liberalize bitcoin actually appears so prescriptive as
to stymie the development of crypto currency. Meanwhile the
European Union and their bank regulators have been - surprise
surprise - keen to protect both weak eurozone banks and the
flawed euro currency.

However in all this confusion, neither the progressive nor the
reactionary factions have necessarily paused to consider well
‘On the Minting of Coin’ for starters. ‘Bad money
drives out good’ is the operative concept here. In other
words, a lower quality (i.e. overvalued) currency will circulate
in the economy while any higher quality money (say gold coins,
which have not been debased) will be hoarded by savers.

Therein lies the bitcoin conundrum - government money has always
been debased, ultimately the political classes cannot resist it.

Moving forward, successful governments must ignore
the biased advice from their cadres who mistakenly believe they
can still control cash. Digital realpolitik is destroying the
government money monopoly.

In the modern world, when politicians manipulate money, scarce,
valuable crypto currency will be favored by savers throughout the
world. In the past, authorities failed to search under every
citizen’s mattress. Nowadays, politicians have no chance of
finding every digital wallet.

Government must embrace bitcoin or die.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.